Implementing value-based pricing

It’s never been more important to get your pricing right, says David Smith, director at Simon-Kucher & Partners

Change is afoot in the higher education sector. More and more, universities are beginning to think about what they offer and what they charge for it. 

Traditionally, universities have relied on competitor benchmarking to set prices, which of course relies on (a) selecting the right competitors to benchmark and (b) that your competitors got their pricing right (when in reality they are looking at you). As competition ramps up, universities will be forced to commercialise their approach to pricing with scalable, future-proof pricing processes. Ultimately universities should begin viewing their students as customers andquantifying the value they offer if they are to avoid losing out to competitors. 

One key challenge facing universities is the urgent need to ensure internal consensus on the strategic trade-offs they are willing to make. In order to optimise your pricing, you must first have agreed your goals and the acceptable trade-offs you are willing to make (e.g. volume, quality, mix, revenue, profit, breadth of courses etc.). Too often we see differing priorities across institutions (e.g. Central team vs. Academics) and no overall consensus. The acceptable trade-offs are particularly important as pricing decisions will typically involve making compromises between opposing objectives (e.g. revenue vs. volume). We typically see a “have it all” mentality, where the only acceptable solution is to meet all objectives, and universities are unwilling to confront the difficult questions about which of their goals takes priority. This problem is exacerbated when ownership of key pricing levers such as financial support are devolved to the faculties. As a results, universities tend to favour pricing in a “corridor of comfort”, just in line with what their closest rivals charge.

Watching how the market for digital education pans out will provide a fascinating insight into how far the sector has progressed in its commercial thinking. The future of digital education, be it MOOCs or other forms of online delivery, centres around finding a business model that works. Most early MOOCs have been free, but does this constitute a sustainable business model? And if MOOCs (or online delivery more generally) have value to the users, is there any reason why we cannot charge?

In my next blog, I will explore some thoughts around MOOCs and digital education more broadly, and how universities can approach finding a workable business model. 

See more from David here


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